Integration of a DNA copy of the retroviral genome into a chromosome of an infected cell is an essential step for normal viral replication. Our objectives are to analyze the detailed molecular mechanism of the integration reaction and facilitate the development of inhibitors of this step in the retroviral replication cycle. We have demonstrated that a single protein (IN protein) encoded by HIV mediates the central steps of the integration reaction. This protein has been expressed in E. coli and purified in active form. HIV IN protein has a site-specific nuclease activity that cleaves two bases from each 3' end of the viral DNA and a DNA strand transfer activity that joins the resulting recessed 3' ends to the target DNA. A set of mutant HIV IN proteins has also been purified. Mutations that reduce the site- specific nuclease activity have a parallel effect on the strand transfer activity, suggesting that the active site(s) for the two reactions are intimately related. The mechanism of the HIV DNA strand transfer reaction has been investigated by carrying out in vitro reactions using a target DNA containing chiral phosphorothioate groups. The results support a single step transesterification mechanism. Experiments to determine the extent of HIV terminal DNA sequence required for the cleavage and strand transfer reactions reveal that only a few nucleotide positions proximal to the very end of the viral DNA are critical for these reactions. A simple in vitro assay system has been developed that is suitable for screening potential inhibitors of HIV DNA integration. Only short oligonucleotides matching an end of HIV DNA and purified HIV IN protein are required as substrates. Since each step of the assay can be carried out in the wells of microtiter plates, large numbers of reactions can be processed simultaneously.